TaxTMI 
TaxTMI 
2013 (9) TMI 231
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.... the Ld. TPO's action of; 2.1 not appreciating that none of the conditions set out in section 92C(3) of the Act are satisfied in the present case; 2.2 disregarding the Arm's Length price ("ALP") as determined by the Appellant in the Transfer Pricing (TP) documentation maintained by it in terms of section 92D of the Act read with Rule 10D of the Income-tax Rules, 1962 ('Rules'); 2.3 including certain companies that are not comparable and are diversified as compared to the Appellant (Stup Consultants. Kirloskar Consultants Mahindra Consulting and Semac Limited) in terms of functions performed, assets employed and risks assumed: 2.3.1 Strictly without prejudice, if the afore-mentioned comparables were to be accepted, then the comparables taken by the Appellant (namely Kitco Ltd. Consulting Engineering Services and Development Consultants) should also be taken into consideration in determination of the arm's length price of the international transactions; 2.4 excluding certain companies on arbitrary/ frivolous grounds even though they are comparable to the Appellant in terms of functions performed, assets employed and ris....
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....i and CIT v. Oriental Motors Car Co. P. Ltd. 124 ITR 74 [1980]. Allahabad and passed erroneous order without appreciating that the facts of these cases are distinguishable from the facts of the assessee's case. 3.5 That on the facts and circumstances of the case, and in law the Ld. AO and the DRP erred in placing reliance on Instruction No. 3/2010 dated March 23, 2010 issued by CBDT. as the same is ultra vires to the scope of section 119 of the Act. being prejudicial to the interest of the assessee." 3. Brief facts are: Bechtel India Private Limited ('BIPL' or 'the Company' or 'the appellant') is engaged in the business of export of customized electronic data in the form of designs, drawings, calculations and other relevant datasheets relating to project engineering and commercial solutions for power plants, refineries, petrochemical plants etc. and is thus characterized as an 'engineering design service provider'. 3.1 The Company is a captive service provider, providing engineering design services to its Associated Enterprises (AEs) to support the overseas office's turnkey project execution. 3.2 During the relevant financia....
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....ng data for FY 2007-08) 1 Kitco Ltd. 7.25% 2 Lurgi India Co. Pvt. Ltd. 7.02% 3 M N Dastur & Co. Pvt. Ltd. -1.44% 4 Technip India Ltd. 22.69% 5 Consulting Engineering Services India Pvt. Ltd. 9.43% 6 Development Consultants Pvt Ltd. 13.64% 7 UB Engineering Ltd. 7.15% Average 9.39% BIPL's margin 16.42% 3.7 The above results provided evidence based on current year data (i.e. FY 2007-08 data) that the international transactions pertaining to provision of engineering design services were at arm's length and in accordance with the Indian Transfer Pricing ('TP') Regulations. 3.8 Based on the above economic analysis, the Ld TPO accepted one comparable company, viz., UB Engineering from the above search and rejected the other 6 companies on various grounds such as functional dissimilarities, significant related party transactions, non-availability of Annual reports etc. 3.9 The Ld TPO finally arrived at a set of 6 comparable companies in the TP Order as given below. S.No. TPO's Comparables Working capital adjusted OP/TC margin 1. Mahindra....
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....ot legible. Therewith, with these short comings a proper comparison cannot be made and it is very difficult to determine amounts items of costs such as employee costs, etc. 4.2 If Semac is removed from the comparables set, and all other comparables selected by DRP are accepted even, then comparable companies works out to 19.75% and the same is within the +/- 5% range of the appellant's OP/TC margin of 16.42% as allowed under the safe Harbour proviso to Section 92C(2) of the Act and accordingly, the appellant's international transactions could be held to be satisfying the arm's length standard under the Indian Transfer Pricing Regulations. 4.3 With respect to Semac Ltd., if Semac is to be accepted as a final comparable, even where annual report is not legible for the FY 2007-08, and it is difficult to determine amounts of each line item of costs such as employee costs etc., then on same parity Consulting Engineers and Development Consultants comparables should be included in the final set of comparable companies. 4.4 The TPO rejected the comparables on the basis that it is deriving majority of its income from "engineering Assignment" and no segmental information....
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....hri Sandeep Chaufla contends that: (i) There is no dispute about the incurrence of this loss as in the subsequent year the AO after due verification has allowed these losses. (ii) Similarly, there is no dispute on the method of accounting followed by the assessee is mercantile as the AO has recorded this fact in the assessment order. (iii) It is not disputed that these losses have been recognised by the assessee in accordance with applicable accounting standards/policies in this regard. (iv) The AO has raised only dispute that this loss is not allowable as deduction in the year of incurrence computed under mercantile system by following the accounting standards in this respect or at the time of realization of export proceeds on maturity of forward contracts. 5.3 It is pleaded that similar question arose in the case of CIT v. Woodward Governor India (P.) Ltd. [2009] 312 ITR 254 that whether the loss arising on fluctuation of exchange in respect of loan taken for revenue purposed is allowable as deduction in the year of fluctuation of exchange rate or whether the same could be allowed only in the year of repayment of such loan. The Supreme Court....
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.... been disputed by AO. This is further evident from the DRP order for succeeding year recognizing the fact of actual payment of loss by assessee. Therefore, it has directed in A.Y. 2009-10 that if this loss has not been allowed in A.Y. 2008-09, then it should be allowed in A.Y. 2009-10. 5.10 There is no provision in the Act that calls for disallowance of such losses. Therefore, such loss arising out of binding contracts is not notional or contingent. 6. Ld. CIT (DR) is heard on T.P. adjustments and corporate addition i.e. disallowance of loss. Ld. CIT (DR) supports the order of AO /TPO/DRP. 7. We have heard rival contentions and perused the material available on record. Apropos T.P. addition, the DRP has directed the TPO to include the comparable case of M.N. Dastur & Co. (P.) Ltd. The grievance of the assessee now pertains to the adoption of Semac as comparable by DRP only on the basis of annual report of the subsequent year and that of current year which is not legible and on which assessee could not submit its valid comments. If Semac is removed from comparables due to these infirmities in that case the comparable OP/TC margin works out to 19.75% as against 16.42% declar....